Multiple Choice
Which of the following items is included in merchandise inventory under both the perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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The amount of money paid for raw materials and products sold is called:
A
Gross Profit
B
Net Sales
C
Cost of Goods Sold
D
Operating Expenses
Verified step by step guidance1
Understand the concept of Cost of Goods Sold (COGS): It represents the direct costs attributable to the production of goods sold by a company, including raw materials and direct labor costs.
Differentiate between the terms provided in the problem: Gross Profit, Net Sales, Operating Expenses, and Cost of Goods Sold. Each term has a distinct meaning in financial accounting.
Gross Profit is calculated as Net Sales minus Cost of Goods Sold. It represents the profit a company makes after deducting the costs associated with making and selling its products.
Net Sales refers to the total revenue from sales minus any returns, allowances, and discounts. It does not include the cost of producing goods.
Operating Expenses are the costs incurred during the normal operations of a business, such as rent, utilities, and salaries, but do not include the direct costs of producing goods (COGS).
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